Government sector drives Saudi Q3 growth

A surge in government services and other public sector activities boosted Saudi Arabia’s real GDP by nearly 5.87 per cent in the third quarter of 2012 despite slower growth in the oil sector, according to a key Saudi investment firm.

“This strong performance was mainly driven by a solid growth in the non-oil government sector. At 5.87 percent, year-on-year growth in the third quarter was higher than the 5.5 percent GDP expansion in the second quarter,” the Riyadh-based Jadwa Investments said in a three-page report, citing government estimates.

But it noted that the rise was lower than the growth registered at the same period last year, adding that the main growth drivers have also changed.

The report showed growth in the third quarter was driven mainly by the non-oil government sector, which surged by 12.2 per cent over the third quarter of 2011.

The private sector also performed well, expanding by nearly 5.1 per cent. The oil sector recorded a relatively low growth of about 2.3 per cent and the report attributed this to the fact that the Gulf Kingdom’s oil production did not record a major increase.

Jadwa said most the public sector growth was a result of a sharp rise in government services which expanded by 13.4 percent year-on-year.

“While such strong performance reflects improved government services, it is also surprising that this growth occurred in the third quarter where economic activity tends to be slower relative to the rest of the year,” it said.

“We expect this expansion in services to translate into higher non-oil revenues for the government budget which is due to be released within the next two weeks.”

The figures showed growth in the private sector in the third quarter of 2012 was lower than the 6.4 per cent growth recorded in the same period of last year.

It said the slower growth reflects a large base effects as the private sector expanded by 8.8 percent year-on-year in the same period last year.

Despite the moderation in activity, the private sector growth remains robust supported by public sector investment, strong domestic demand and rising bank lending, it said.

While all sectors registered a positive year-on-year growth in the third quarter, their performance varies, Jadwa said, adding that the transport and communication sector was the next fastest growing sector, at 8.7 percent year-on-year.

It said growth in this sector stems from the need to move a high volume of goods around the Kingdom (both imports and construction materials) and the ongoing rise in mobile telecom and data services.

Utilities and construction both registered a solid growth in line with their seasonal trend at 8.4 and 8.1 percent year-on-year, respectively.

“For the latter, we expect an even stronger growth in the fourth quarter, while the utility growth rate is expected to slow down.”

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